Examination of Witness (Question Numbers
274-298)
Chair: Thank you very
much for coming to give evidence to us this morning, Mr Lewis.
Could you tell us whether you agree that the new CPMA should be
a consumer champion?
Mr Lewis: I certainly
think it should be pro-consumer and I'm delighted to hear that
it has a pro-consumer remit. I have wrestled with the concept
of it being a consumer champion as I think, certainly, from my
own perspective, having lobbied over consumer issues and pro-consumer
issues over years, there are some things I know I can say that,
no matter how much freedom of remit the CPMA will have, it will
never be able to rant and tirade in quite the way that sometimes
consumers need.
Whether it should be a full-on consumer champion,
which for me is not balanced—I'm very lucky I don't have
any intrinsic need to be particularly balanced in my view. I am,
unapologetically, one-sided in the way that I work. I think the
other consumer champion organisations out there: Consumer Focus,
which I'm very, very disappointed to see to be going, or Which?
or Citizens Advice, are unapologetically pro-consumer, and I think
there are some difficulties with the regulator going quite that
far. So I wrestle with the point and the term "consumer champion".
I'm certainly delighted to see it have a very strong pro-consumer
remit and be reacting to the consumer champion bodies that are
out there. But whether, in reality, a regulator can truly be "the"
consumer champion I find a difficult concept.
Chair: Do you think that
increased competition is likely to be the best consumer champion?
Mr Lewis: I have
always been a fan of increased competition, apart from when the
action that that competition takes has been to tie up the market,
which we've seen in financial services. It's a very limited marketplace
and we do know that banks tend to operate in a very similar way.
If we take the old example of bank charges for going beyond your
overdraft limit, until the recent investigations into bank charge
reclaiming, there was no competition in that market. The difficulty
with competition, when we talk about the financial sector, is
that the competition takes place on the headline rates, so banks
will compete over interest rates, over introductory bonuses, over
overdraft rates, but often, on the bits that people never think
of, the stealth charges, the bits that people don't see, there
is no competition in those marketplaces and no way to avoid them.
So I think, certainly, competition addresses some of the problem.
Competition certainly helps and I genuinely believe that, in this
country, we have a relatively competitive financial services sector.
There are those who argue that we should have a limited choice
of mortgages out there because that would aid people's problem
with confusion. I disagree. I think we want as much range and
as much choice as possible. But what I would hope to see a regulator
do is make sure that there is real choice and real competition,
right across the board, in all areas of a product, but there only
is in headline rates.
I have two big problems with the way the situation
works at the moment. The regulatory system is massively complicated
and we have a financially illiterate public, and those two things
do not add up. My second point would be that banks and financial
institutions, deliberately and maliciously, use the complexity
of the system to avoid recompense and redress when they do things
wrong. Those two things are very severe problems, in my eyes,
that need to be looked at.
Chair: The first of the
two things that you referred to, before you got into that second
set of two, was stealth charges. Presumably, what we need from
the regulator is pressure to ensure that those charges are not
stealthy but are visible and costed out, so that consumers can
make informed choices?
Mr Lewis: Yes and
no. The problem I have with the way we've dealt with stealth charges
in the past—I'm going to use credit cards as an example
because it is the easiest to describe. One of the problems for
me is that consumer credit isn't part of the remit of this regulation,
which I don't understand frankly. I find that a very difficult
and confusing issue and I know many consumers do too. But let's
take credit cards for a second—
Chair: That is a very
difficult case you've moved straight on to, perhaps one of the
most difficult for establishing clarity of charge, but anyway.
Mr Lewis: But I'm
going to use it as—
Chair: There are easier
examples than that.
Mr Lewis: Can I
give the example of the problem with how we regulate over stealth
charges because I think this will make more sense than using an
easier example? We introduced a few years ago—after much
lobbying, which I wasn't a part of—credit card summary boxes.
Now that was because there was a demand that you must know the
information, and the detailed information, about a product.
I gave a talk at a university I'm a governor of the
London School of Economics. With regard to the Lloyds advance
card, I asked the students what it meant when it says in the summary
box for the interest free period—"None". Nobody
knew. A few of them stabbed, as many consumers think, that it
meant that there wasn't a 0% period for six months or for a year.
What it means is, even if you pay the card off in full at the
end of the month you will pay interest on it. I asked the same
about repayment hierarchies, nobody understood what that meant.
I asked the same about credit card loading.
My problem with making stealth charges less stealthy
is we need explanation, not information. One of the great excuses
the industry has given over the last 10 years, of how it has improved,
is it has given more information. But with no financial education—I'm
a great believer in compulsory financial education in schools;
an issue for another day—and a financially illiterate public,
giving information doesn't do the job because people haven't got
a bloody clue what it means.
My problem with saying what a regulator should do
is make sure they're not stealthy and that companies have to publish
them, well what we end up doing is publishing a massive range
of charges. We tell people what they are but people don't look
at them and don't understand. It's a more difficult problem than
just providing the information.
I read the submission from the head of the BBA when
she was talking to you, I think it was last week, and she talked
about needing to provide information. This is the great excuse
of the industry: we give them all the information. But I'm afraid
if you were interviewing real members of the public and you asked
them even basic questions about financial products, they wouldn't
understand them. Information is not good enough. It is not good
enough.
Chair: Just to summarise
your overall view: the regulation is far too complicated and,
therefore, not achieving its purpose, and the industry is hiding
behind complexity, part of which is a result of the massive amount
of regulation, in order to rip off customers.
Mr Lewis: Let me
make the second point very plainly. Perhaps the biggest scandal
in—
Chair: Do I have that
right?
Mr Lewis: Yes,
bang on.
Chair: All right. Carry
on. Make the second point in the way that you would
like.
Mr Lewis: PPI reclaiming
is a campaign I've been involved in since 2007. One million template
letters have been downloaded from the website on this one. I will
explain it to you in the same way that I tell the public when
I'm on television or radio, because my job is to try and bring
this down to its ultimate nub. I say, "Here are some of the
reasons you may have been mis-sold. They told you it was compulsory;
it isn't. They didn't tell you, you have the product. That's a
classic mis-selling. They didn't ask you whether you had a pre-existing
medical condition. They didn't check whether you were self-employed
so the policy doesn't cover you. If any of those applies you may
well have been mis-sold. This is what you do: you write to your
bank, you explain why you've been mis-sold and your bank will
tell you to get lost. Expect it to tell you to get lost. The fact
it tells you to get lost has no bearing on whether you have a
case or not. It will almost certainly tell you to get lost. It
will do that with a large letter in legalese telling you why you
have absolutely no case. That is part of the dance. You then take
that letter to the Financial Ombudsman where you have an 81% chance
of winning; a four to one chance of getting resolution in your
favour". Those are the stats from the Ombudsman in payment
protection insurance. Every one of those 81% have been rejected
by their bank with a letter telling them, "You don't have
a case".
Well that is absolutely ridiculous. There is an eight-week
period you have to wait and it is a deliberate policy of attrition
of the public, so that they cannot get justice by using a devious
form of rejection to try and stop people claiming. Claims-handling
industries have grown up on the back of this, when all you need
to do is go to the Ombudsman. They charge 25% of the £3,000
or £4,000 that people are owed. They have already been ripped
off once. They are taking their money yet again, because the system
is too complicated and financial institutions are allowed deliberately
to use confusion to stop people getting redress. The very simple
solution for me is: any sector where the Ombudsman upholds over
30% of cases should automatically be reviewed—I would do
it by the Ombudsman because I think they're in the best position—and
all that sector needs to be looked at. We need to stop putting
people through the mill of this.
Everybody knows that while payment protection insurance
can be a good product but the ones sold by banks are a rip-off.
It's a pure and simple rip-off sold by the banks. It has been
a rip-off for years. I love the fact I'm allowed to say that freely
in here. It's been an absolute rip-off and it should have been
stopped. What we should have done is come down, and instead of
people having to complain about it, when this is ill-informed
members of the public who have absolutely no way of fighting their
corner—I'm going to say one more thing and then I'll stop
my rant. My template letters, I have been told—
Chair: I don't know what
you have for breakfast but—
Mr Lewis: I've
been up doing telly already. I've been going for hours. This is
why I get upset about this: on the template letters we send, people
are asked to put in their names and address and their financial
details. I've been told that about 5% to 10% of people, where
it says "your name", "your address", leave
the "your name", "your address" in, and where
it says "put in your account" they leave "put in
your account". They just send the letter without adding their
personal details. Now you can laugh at that, but for me that means
there are people in this country so desperate and so trusting,
and—whether it's due to mental handicap, whether it's due
to mental capacity issues—so unable to deal with their own
financial issues that they just send a template letter without
putting any details in, in the hope that they will get redress.
For me, those are the people we should be protecting,
and the only way we can protect those people is by a proactive
stance so that when we can see obvious systemic abuse, as we can—just
look at the Ombudsman's stats for complaints upheld; it shows
systemic abuse; it shows lots of cases where people have been
rejected, then over 50% of the cases are upheld by the Ombudsman—there
needs to be some form of automatic investigation and ease of redress
for people. Payment protection insurance could be up to £10
billion mis-sold and we have not handled it. It's a disgrace.
Chair: So we have to point
this legalistic pirouette with the banks, which they're engaging
in, in order to minimise payouts and engage in attrition with
the consumer?
Mr Lewis: It's
a tactic. It's a pure and simple tactic.
Chair: That is basically
a summary of what you've said..
Jesse Norman: I would
like to just ask you about the FSA and the retail distribution
review that's been done. That's a review which has caused, I think
it is fair to say, a great deal of concern in this Committee and
among other Members of the House. Could you just give me your
view of whether you think it's a sensible piece of regulation
and whether you think IFAs have been fairly treated by it?
Mr Lewis: I'm rather
worried. Funnily enough, many financial journalists are very pro-fees,
when it comes to IFAs, and think that IFAs should charge fees.
Probably, by the nature of what I do, I deal with a wide spread
of the public. The websites have 10 million unique users a month.
It's a very wide range of people. I worry that if you ask people
to pay for financial advice they will not pay. Now, I'm not the
greatest fan of IFAs, but I certainly think they're far better
than tied agents and are well worth people going to on issues
like protection, pension and investments especially for somebody
who doesn't have a clue. I sometimes worry about which is the
worst evil: having some IFAs who are paid commission and who have
limited levels of commission bias, which should be regulated very
stringently to try and reduce the commission bias, or not having
people go at all.
So I'm not 100% convinced of the idea that fees solve
everything. I think, to an extent, what we're going to end up
having is tied agents who are getting commission, going in selling
hard. It's very difficult for the public to understand the concept
of tied agents—multi-tied IFAs—going in selling hard.
People go into their bank and think the salesperson, who is commission
incentivised, selling them payment protection insurance, is a
financial adviser. That's difficult enough. To tie IFAs' hands
by not allowing commission, certainly in environments where people
would prefer them, seems to be a problem for me. I understand
there are some solutions to that, in that they can keep the commission,
but they tell how much it is and rebate if it's over a fee level.
It's not my strongest area. It's not what I look at because, basically,
in the areas that IFAs look at, I tend not to because that's not
my job, if you know what I mean. But I'm not convinced fully.
Jesse Norman: Let me put
the question a different way: do you think there is a segment
of the investing public that would be disadvantaged by the threat
to IFAs from a loss of commission income?
Mr Lewis: I need
to be honest with you: I don't cover investment. I don't. So I
don't think it would be fair for me to give you an answer because
I'm not well enough informed on it.
David Rutley: We had a
conversation with Peter Vipond from the ABI recently, and he felt
very strongly that the CPMA should have a statutory duty to encourage
savings, and Mark Hoban is absolutely opposed to the idea. Based
on what you have been saying about the importance of education,
where do you think things should fall?
Mr Lewis: I think
we should first encourage people to pay off their debts, and I
think that's one of the great dangers that we have going on right
now. I did a talk at the Building Society conference a few years
ago, and I asked there, "How many of you are savings managers?"—this
is mutuals—and they put their hands up. I said, "How
many are remunerated by how much savings you bring in?" They
put their hands up. I said, "How many of you tell your staff
that if customers come in, the first question they should ask
them is, 'Do you have a high interest rate credit card, and have
you considered paying that off before you start saving'?"
No hands went up. I am very pro people saving—although whether
the economy needs it or not is another question; I know the Bank
of England doesn't necessarily agree—but they have to pay
off their debts first. This is always the problem when we have
blunt ideas of how we work things.
So I would first have a debt reduction plan and make
sure people are incentivised, first to reduce their debts and
only after that to save. If you have debt on an 18% credit card,
savings are at 3% after tax, 2% in a high street or even in a
top savings account—pay off your credit card. It's the best
way you can save. Frankly, going forward, with mortgages now at
5% or 6%, for many people paying off their mortgage, as long as
they have an emergency fund, is better than saving. So should
it have a statutory remit to encourage people to save? Yes, as
long as you count saving in that wider context of reducing debt
as being a part of saving. I don't know whether it did or it didn't;
you have to forgive me.
David Rutley: Following
on from there, what worked well, in your view, with the FSA, and
what should be transferred across to CPMA? You highlighted an
interesting theme—I know you've been preaching it for many
years—about education. How do you think that can be best
picked up? So two questions, really.
Mr Lewis: I'll
start with education first, if I may.
David Rutley: Sure.
Mr Lewis: It's
very difficult not to go on a polemic on this. I've always found
that quite difficult. The fact we don't have compulsory financial
education in schools, when we've had student loans in this country
for 20 years and we have educated the nation into debt when they
go to university, but never educated them about debt, is a national
disgrace. We're just about to introduce potentially much bigger
student loans with real rates of interest, and we are still not
going to have compulsory financial education of the people who
are going to borrow them. We are going to get them to hang the
debts around their neck without understanding it. That is wrong
in every single system. The main thing we could do to improve
your regulations—to stop mis-selling, to have better informed
consumers, to have more responsible borrowing, to penalise irresponsible
lenders—would be to teach every child in school how finances
work. If they started to understand it, all these problems would
diminish.
I think the FSA has done some reasonable work on
that. It's not for the FSA to put it on the national curriculum.
It is for Members, and it's very nice to be talking to you about
that. The education system—and I'm probably rent-seeking
here. I own the UK's biggest money website; it's important I say
that before I say what I'm about to say. The FSA has done things
like setting up Moneymadeclear. It's done the classic thing of
government, which is you see something that works well and you
try and replicate it in your own image. It hasn't worked. It has
a very small amount of traffic, compared to my site and other
sites. It is this type of idea that Government considers it needs
to do itself rather than work with external websites. I would
be quite happy—and I suspect many of the other sites would
be—if the FSA told us what it thinks we're doing right and
doing wrong, and gave us a stamp of approval, rather than spending
its own money on replicating what we are doing and it never being
read, or not give us the stamp of approval if it doesn't like
it.
The way that education has been done, for me, is
relatively staid and relatively boring. A word I never use in
my public broadcast is "finance", and it's the word
that we're here to talk about. Finance isn't interesting. Looking
after the pound in your pocket is. Saving money is interesting.
Beating the system is interesting. When we talk about education,
we have to not do it in a po-faced way. We have to do it in a
way that shows that by being educated you can gain. I think the
FSA has had some good remits on its education and CFEB, I hope,
will help and improve that. But I still do think that, unfortunately,
we do it in such a worthy way that it doesn't work well enough,
and people don't necessarily trust those institutions. I'll just
give you an example. We have the FSA; we have the Ombudsman; we
have the FSCS; we have the OFT; we have the Competition Commission.
If you ask the public what they do, most people wouldn't know.
If you want your savings to be safe, you have to
split them into institutions that aren't linked, but Halifax Bank
of Scotland is one institution; RBS and NatWest are two institutions.
So you could put £50,000 in each of those and you'd be safe,
but only £50,000 in Halifax Bank of Scotland to be safe.
If you want to find that list, it doesn't exist on the FSCS website.
It exists on the FSA's website, even though you're protected by
the FSCS. On the FSA's website, the only way you can look this
is up is by looking at the banking registration on this. We have
it on our website. We've done it and I have someone who works
to keep it up-to-date. That type of completely disjointed thinking
that people can't penetrate, unless they work through the system,
defeats all forms of education anyway because we're not giving
the information out in the first place.
I don't think the people who are doing the education
understand how consumers think and need the information to come
across to them, and until they do that, the education won't work.
David Rutley: So are you
planning a reality TV show to help make this more accessible?
Mr Lewis: If the
television companies would give it to me, I would do it. I did
a team cash class three years ago, where I went in and taught
12 15-year-olds of mixed ability how to save money. We sent them
home and they saved their parents £5,050 after a day's lesson.
That teaches you two things: one, we desperately need compulsory
financial education in schools; two, we could do with some compulsory
financial education of adults as well. So I would love to do that.
Unfortunately, it's the TV channels who have to decide—not
me—whether that happens. But yes, that type of thing—the
opposite of The Apprentice—trying to teach kids to be money-saving
experts. We've made entrepreneurship programmes, and that's great,
but we need to make being a good consumer and understanding that
important as well. We're just coming out with our own curriculum
guide that we've been working with pfeg on to go and help teachers,
but all that work could be done.
As for what the FSA has done well, well, it has done
some things well. It needs to be proactive; it needs to be spotting
flaws before they happen. I think that's one of the great problems
that we have at the moment. There is a genuine disconnect between
the people at the top of organisations and the people creating
products; the FSA isn't necessarily talking to the right people.
There is a disconnect between the manufacturers of product and
product marketing, which means what the product is set up to do
is often not what it is being sold to do. There's a disconnect
between the people selling the product, those at the coalface,
and what is going on with top management, and I think in many
ways the FSA hasn't been quick enough to look at all those different
elements and bring its regulation in. It has done it on certain
occasions. I thought what it did on mortgage administration fees
was a great piece of work. It spotted a problem, it told them
they had to change and companies changed it.
But banks and financial institutions are incredibly
good at coming up with clever new products, not just in the derivatives
market—that I know is another part of what you're looking
at and I don't understand, frankly—but in the consumer finance
market. We look at these very carefully, and the number of times
we see a product that is marketed and we get very excited and
think it will be great to tell people about, and then we spot
a hole. It comes up all the time. Now, whether we should regulate
away from that or whether we should just make sure they communicate
what that flaw is, unfortunately doesn't work because no form
of regulator is quick enough to spot this. When a new product
comes out and the marketing goes in heavily, and they're following
the existing regulations, but they've found a new way to make
profit and to take money out of consumers' pockets, I can't see
any regulator being quick enough, which goes back to my original
point about whether it should be a consumer champion or it should
be pro-consumer. We need a way for people to filter into that
process. If I spot problems that I think should be changed, I
don't know how to do it and I'm one of the biggest gobs out there
on the subject. And I don't know how to get something changed,
because every time I've tried to do it, it doesn't work, or at
least to get something looked at. So how does that happen? There
must be a way that people can filter in to get things looked at
when there are problems.
Mark Garnier: You've talked
about problems being education, too much information, obfuscation,
complex procedures, confusion, all this kind of stuff. Turning
more specifically to the products that you list on your website,
do you see any common thread coming in when things go wrong amongst
the products themselves, as opposed to the overall umbrella?
Mr Lewis: Common?
No, and it's very important that the answer to that is no. That's
the great difficulty, there isn't a common thread. But there are
common confusions that go on out there. One of my little agenda
points—while I have my chance to say something—that
has to be looked at here is the concept, for example, of FSA registration,
as opposed to FSA regulation. We've just had the collapse of Crown
Currency Exchange, which many people are very upset about. This
was an FSA-registered company, which frankly means nothing. But
when you read what people are very upset about, it is that this
is a company that had "FSA registered" on its website,
which people thought implied something, but means nothing. That
type of confusion is a real problem. Frankly, it would be better
not to have had that company being FSA registered, for all the
good it has done being FSA registered, not to have had the stamp
on the website, and therefore to have had no implicit—it's
not a recommendation—legitimacy implied by its FSA registration
would have been very useful.
When we talk about "product specific",
the only thing that they have in common is that it's always very
clever. What is done is always very clever. I and my team of nerds,
and other people who work at this on different websites, try and
spot them and we try and spot what goes on. One of the great problems
I have with comparison sites is that people compare on rate. The
best way to choose a product is to compare on rate and know how
you use the product. Take a very simple example: cash back credit
cards—wonderful products. People can make hundreds of pounds
a year. I'm a massive fan, provided you, in font 100, say, "Set
up a direct debit to repay the card in full every month so there's
no interest". Now, choosing the best cash back credit card
on rate and not doing that, defeats the whole purpose. That's
a simple example. There are many much more complicated examples.
I remember years ago Barclaycard set up the 0% for life credit
card if you shifted your balance. All you had to do for that 0%
for life was to spend £1 a month on it, which, of course,
meant repayment hierarchies came into place, so that your expensive
debt from spending was paid off last, your cheap debt was paid
off first. Most people would spend far more than £1 a month
on it. That debt would then get trapped in. Barclaycard would
make its profit. We set up a direct debt system to charity for
£1 a month to defeat it, and Barclaycard changed that product
within three or four weeks, so that you had to spend £50
a month. It was six or seven months later that the regulation
came into place that they couldn't use the 0% lifetime marketing
on that product. So consumer reaction can be much quicker. But
we knew what was going on with the product after day one, in fact
before it was launched. I had it embargoed. But there isn't a
rule.
The point is that this is a constant battle between
new ways of making money come in, new ways of defeating them,
and other new ways coming in. But the rule is: how they make money
changes, and whatever we try and do now, or whatever the trends
are now, will be different in two years' time, and new fees and
new charges, and new stealth charges and new ways of manipulating,
right across financial services, will come in. I perceive we have
an adversarial consumer society; the companies' job is to make
money from us, our job is to try and stop them, but we need some
regulation to make sure it's a level playing field, which it has
not been for a long time.
Mark Garnier: In summary,
you are saying that there's an awful lot of pointy-headed boffins
sitting in banks, trying to work out ways of getting around whatever—
Mr Lewis: And not
enough pointy-headed boffins trying to tell people how to stop
them.
Mark Garnier: I think
your pointed head is the bigger one.
Mr Lewis: Thank
you very much.
Mark Garnier: Can I just
change to a slightly different subject, looking at macro-prudential
tools. I think you said you went through Angela Knight's evidence
last week. One of the things she talked about was the FPC's toolkit.
This could include quite a lot of significant socioeconomic measures.
For example, we as MPs may well see a number of constituents complain
that they can't get a mortgage, because the FPC has made a decision
to take the heat out of the housing bubble. Do you think, as a
result of that kind of thing, you're going to see some potential
conflicts coming between the FPC, the CPMA, CFEB, and possibly
even Parliament?
Mr Lewis: Yes,
certainly. If we take that as a very specific example, one of
the problems that always happens when we talk about regulation
of borrowing is that people start to get protective and say we
need to protect people from themselves, from borrowing too much
money. Those regulations are then enacted; let's say you put a
70% LTV cap on it, and say you can't go above 70% or 80% on LTVs.
Or we put a limit on the amount that you can have on your credit
card. What you effectively do, often, by those type of regulations
is, you trap people in who already have existing debts. This is
what we've seen, time and time again. It's what we're struggling
from at the moment. We have a very competitive credit card market
right now. We have the best 0% balance transfer deals we've ever
seen on the market right now, for those with fantastic credit
scores. But lots of people with existing debts can't use them.
So what tends to happen, when you look on a macro level, is rules
are made that seem very sensible, but miss the impact on real
people and real lives. Certainly, putting caps for people who
are desperately trying to get to new borrowing out there, would
cause a tremendous strain on the public.
We have a ticking time bomb in the mortgage market,
right now. We have people who are at 4% over base on their tracker
rates. They think they're getting a cheap deal because they're
at 4.5% interest. If base rates go up to 5%, which would not be
anomalous—now is the anomaly—they're going to be paying
10%; whereas, in the past, trackers were at 0.5%, 1%, over base
rates. So, if and when, and I presume it is when, interest rates
rise, whether it's in three years or five years, there's going
to be an a absolute nightmare. It costs double on the way up,
is an old phrase of mine. If you save £50 on the way down,
losing £50 on the way up feels like losing £100. It's
always worse the other way around. So when we start looking at
FPC trying to control the economy by tools that affect real members
of the public, we're going to come into conflict. You can go straight
back to the Keynesian paradox of thrift. Over the last few years,
when we've had an economic downturn, the work I do has probably
been relatively destructive, because my job has been to tell people
to pay off their debts and save, and keep your money aside for
the bad times. Well, the economy doesn't need that, so how the
FPC and the CPMA will conflict in those times, when the FPC wants
people to spend and borrow, and the CPMA is saying, "Don't
borrow, it's not good for you."—it's going to be a
real problem, yes.
Mark Garnier: My next
point, coming on from that, is that you then have, if you like,
the MPC as the body that's going to be putting its foot on the
accelerator, trying to get more liquidity into the economy and
this kind of stuff, and then you have the FPC that is effectively
going to be the one that's sitting with its foot on the brake.
It's going to be very interesting, I think—I'm very interested
in your comments on this—to see how the relationship is
going to work, because, if we go back to the time when we started
having quantitative easing, nobody knew quite how sensitive this
was going to be; whether you needed a lot of foot on the gas,
or a little bit, to get things moving. Do you agree that, when
you're talking about the FPC using the brakes, that it could be
a lot more sensitive than people are imagining, and do you think
the FPC might, unwittingly, overly slow things down and cause
a crisis, or do you think they might have to be very heavy footed
to get the effects they're after?
Mr Lewis: I think
there is always the potential for things to be slowed down much
more rapidly than they need to be, and the consequences on the
individuals who are affected is the real problem. We see already
people who are in terrible trouble with their debts because the
liquidity has gone from the market. You can read in various newspapers
stories that, having the best credit card deals we've seen since
before the credit crunch is either a wonderful thing and the market
is bouncing back, or it's a terrible thing and banks are doing
their old tricks and encouraging people to borrow again. That
is the mirror image of the FPC, CPMA remit, going on right there.
I worry, certainly now, that—you will have to forgive my
lack of knowledge of FPC and MPC interaction—if you put
interest rates up now, there's going to be a much closer track.
It will be much more effective than it has been in the past, because
there are so many people now on trackers, and so many people stuck
on standard variable rates, that they weren't on in the past,
so that we have more variable rate mortgages, from memory, than
we did previously, and more people at high rates. So the reaction
to putting interest rates up, certainly, would be felt much more
keenly than it has done before.
When the FPC comes forward, in terms of closing down
the economy, I do have some great worries of the impact that will
have on real people out there. It tends to be those people—I
think the political phrase is "the squeezed middle".
I'm not quite sure it's the squeezed middle, I think it's the
people just a bit below that. It's those who are working and struggling
at the bottom end who are going to be squeezed by this; those
who get the least amount of help, but have everything on a knife
edge. There are so many people out there whose budgets are balanced
at 0.5% interest rates, as we have now, and as soon as that goes
up, or as soon as any other costs come in, they're not going to
be balanced any more. There's no going back. If you continue to
spend more than you earn, you're going to be in trouble, because
if you can't fix that, you're in a debt spiral.
Mark Garnier: Yes, I see.
Michael Fallon: The Treasury
document on financial regulation concedes that there will be higher
costs, both ongoing and transitional, for most of the firms involved.
How are those costs going to be passed on?
Mr Lewis: They
certainly will be passed on to consumers, because any costs that
financial institutions incur are passed on to consumers. That
is a simple business model, and one would presume this will be
in the form of worse rates or higher charges. From my perspective
of the desirability of that, I think those who will whinge and
complain are probably those, like me, who play the system personally,
and get the very best deals that you can all the time, because
they will marginally lose. But the people who will be better off
by more stringent regulation are the mass of people who are financially
illiterate, and who do need a form of protection out there. So
from that perspective, even if it slightly diminishes the very
best products, and adds more charges on, the sheer amount of money
that people have spent on products, either mis-sold or that they
should not have had in the first place and which don't quite fall
into the mis-selling category, is many tens of billions of pounds,
which is far larger than any increased cost of regulation on the
retail financial services sector. I don't know the investment
banking sector at all, and I can't discuss that. So I would still
say it is worthwhile.
Michael Fallon: So you
are not concerned about any increase in charges by independent
advisers that may then be attributed to the changes in regulation?
Mr Lewis: Again,
the IFA market isn't particularly the market I look at. I wasn't
specifically referring to that. If people get decent advice that
comes through, and that advice is correct, I'm less worried about
it. It's very obvious and it's probably not very helpful, but
ultimately, if the regulation works and protects people, I don't
think there's too much of a problem having some form of increased
cost to it. The problem will come if the regulation doesn't work
and people are paying more. My great worry is the transitional
period to a new form of regulation, and exactly how that will
work, when people will only see disbenefits, as you always do
when there is change, and yet we will see increased costs coming
on, on the back end. Certainly, I think there are some brave decisions
to be taken, going forward. But the IFA market is just not my
market at all.
Michael Fallon: But generally,
with firms, do you not see any opportunity to use regulation now,
to reduce the costs incurred by consumers?
Mr Lewis: The interesting
point for me is that the costs that consumers pay are generally
very cheap, if you know what you're doing. I think this is the
friction here, to talk about costs for consumers. Right now, you
can have a bank account that pays you £100 to go to it, and
5% interest and a 0% overdraft. We have people getting car insurance
for less than £20 a year if they use the right system, people
being paid to take out their home insurance. If you're savvy and
smart, costs are very low. The problem is, the majority of people
are not using those techniques, and if they did, they wouldn't
work.
Michael Fallon: How can
we use regulation to reduce costs more generally for consumers,
not just the clever ones who use your website?
Mr Lewis: I think
you regulate so that products are fairer. It goes back to what
I said in the first place: many of the costs don't come in the
headline prices; they come in the ancillary costs that are never
broken out and that aren't looked at, where there's no competition.
They're only put in the small print, and people don't understand.
If we go back to my great problem with "treating customers
fairly" regulation—this does answer your question—I've
always had a problem with treating customers fairly, in that I
can set up the most abysmally over-expensive product with stealth
charges and, as long as I tell you about it, even if you don't
understand it, and I get you to sign on the line, and I follow
the procedures, I am treating you fairly, according to the rules.
For me, regulation needs to look at the real impact of the product,
and product rate, and product charges, not just the procedure
of product. So if you want to regulate to bring down costs, I
would get regulation to work in a way that looks at what the product
actually does, rather than whether the product is procedurally
correct. Does that answer your question?
Michael Fallon: Yes, it
does. Thank you.
John Thurso: I wanted
to ask you about the Financial Ombudsman Service. Before I do,
going back to the comment you made about our adversarial system—the
consumer society—and the fact that those selling financial
products set out to make as much money as they can, as long as
it's sort of legal, it's a pretty predatory and irresponsible
lending, and it's largely what has got us where we are. Should
we have just a cap on the amount of interest you can charge on
things like consumer credit and credit cards, and just say, "You
can't go beyond that?"
Mr Lewis: I think
on credit cards the argument is relatively simple. Having said
that, I was suggesting, a couple of weeks, ago that people get
a credit card that had 55% interest. The reason for doing that
is, it's the only credit card they can get, and my suggestion
was, they get that credit card and they set up a direct debit
to pay it off in full every month, so there's no interest, use
it for a year, and it will help rebuild their credit score. So
there are certain tools out there that I wouldn't want to stop
working, as long as people use them correctly. My problem with
a cap on interest—I get so many e-mails and messages from
people saying, "I've just seen an advert for a company charging
2,300% interest, that's disgusting, it should stop"—is
that I did a pet calculation the other day which showed that if
I lent you £20 and said, "Pay me back a pint of beer
next week; buy me a pint for it," and the pint cost £3,
that's 141,000% interest, if you compound it. Yet most people
would say, "Buy me a pint and £20, is a pretty reasonable
deal." Interest rates are a blunt tool. I'm more concerned
about 8% secured loans over 25 years at a variable rate which
then get increased up to 15%, 16%, which no interest rate cap
would touch, than I am over 2,300% payday loans, where you pay
back after one week. The problem with payday loans is they encourage
you to keep borrowing, keep borrowing and it snowballs, not the
interest rate, per se. So I'm not unsympathetic to the cap on
interest rate argument, but I do worry that it is just too blunt
a tool to have any real impact. I hope that makes sense.
John Thurso: Yes. Turning
to the FOS, at the moment consumers pay nothing for the service,
the charges fall on the industry and ultimately come back to the
consumer generally. It has been suggested to us that there ought
to be at least a small charge, in order to deter what was called
the frivolous calls. What would your view be on that?
Mr Lewis: My view
is that if you want to deter frivolous calls, you stop the banks
rejecting people who have good cases in the first place. Until
the banks stop doing that, they should absolutely—I can't
swear in here, but they should get lost. That suggestion is deeply
offensive. I encourage people to make so-called frivolous calls
on the Ombudsman, because they are only frivolous because the
banks pretend they are not valid—81% of people rejected
by banks for PPI, then win at the Ombudsman. The banks would say
they're frivolous; it's the banks being frivolous, and until they
get their house in order, they need to bloody pay for it. First
of all, the eight-week rule needs to go, making people wait eight
weeks. I have stats that show 40% of people who complain to banks
don't get a final letter that triggers allowing you to go to the
Ombudsman. That's the Ombudsman's own stats on investigations.
The system is being abused by banks. It's free and it needs to
stay free, because we're talking some of the—if you're making
a financial hardship claim, and you claim you've been mistreated
in financial hardship, to have something that deters you by putting
a cost barrier in place, is absolutely, morally wrong.
There is a real disjoint here and finding these
figures is very difficult, so please, I apologise if I have them
wrong. I would love you to find out what the real answer is, because
we've tried. Our researcher who did it is in here and he spent
a day and a half and we couldn't work it out. 1.6 million financial
complaints in a six-month period: half of them are dealt with
by the banks, 800,000 aren't dealt with, 80,000 people go to the
Ombudsman. That's wrong. Only 10% of people are getting to the
Ombudsman on the complaints. Those stats may be wrong, because
they're very difficult to work out, but it's certainly a very
low proportion.
What we know is the banks' policy of attrition
works. Any barriers put in place to deter claims we should not
have. We need to encourage. We need to resource the Ombudsman,
encourage it, and as I say, it needs some form of proactive power.
The Ombudsman is the best institution of state in a position to
spot systemic problems. It is in the right position, because customers
know when they're being diddled and they complain and the Ombudsman
sees it. The fact that the Ombudsman cannot do anything on a wider
scale, on a group scale, it can only be reactive and not proactive,
I think is one of the problems in the current system.
John Thurso: That was
going to be my next question. In this mix of change, what would
you recommend, bearing in mind of course—and they made this
point to us very strongly—that they don't want to be a consumer
champion because that detracts from their ability to be an independent
adjudicator. So within the role of independent adjudicator, what
should we be looking at for them?
Mr Lewis: We currently have a
flagging system where they can flag to the FSA issues, but I haven't
seen any evidence of that bearing fruit at all. I don't believe
it is taken seriously or a priority. On bank charges, regardless
of what happened in the Supreme Court, it was two and a half years
and 6.5 million template letters before anything was done. Now,
6.5 million is a very big number. A large proportion of society
was doing it before any form of institution of state dealt with
the issue. They were going through the Ombudsman, as PPI are going
through the Ombudsman now, scores and scores of cases, even though
there's a claim being put on hold. There is a disjoint. It seems
quite obvious to me that the things that people are complaining
about are winning and are doing it en masse. You can probably
assume that for everybody who complains there are about 10 people
who don't complain and who are being dealt with in the same way.
It's a very simple system of spotting systemic abuse, but the
fact that nothing is done—
John Thurso: So it would
be a duty on them. If they spot something that is defined as systemic,
the duty would be for them proactively to take action?
Mr Lewis: There needs to be a
duty on someone else to deal with it and deal with it quickly,
because the problem with regulation is it is so slow. When peoples'
finances are in trouble they can deteriorate within a matter of
months. The number of suicidal e-mails I'm receiving from people
in bad debt at the moment is horrendous. It is absolutely horrendous.
Often when you read it, it has been three months, everything has
just gone. It's that dire strait of desperation where people get
themselves in trouble.
There is a nine-month queue for PPI claims at
the moment—because of resource issues and because people
like me have been pushing it very heavily—which is too slow.
The Ombudsman does not have the resources and is trying to do
other things at the same time. The point is all these cases are
the same; they're the same case. They are all resolved in the
consumers' favour. I'm not a financial regulator, but why can't
someone say, "Look, we have 81% of these cases. These cases
are similar to the 4,000 we've had before. Every case you get
like this, Mr Bank, instead of rejecting it, deal with it"?
Someone needs to be able to say that.
The eight-week wait and the fact that if I send
a letter today and I send an identical letter from someone in
an identical situation in eight weeks' time, and this first letter
has been adjudicated by the Ombudsman in the consumer's favour,
the bank will still reject the second letter even if it is identical,
in an identical circumstance, can't be right.
John Thurso: Thank you very much.
Mr Mudie: I am a
great admirer of your websites and I send my constituents to you
when they raise problems. But I think today it's more important
you tell us what you think we should do. The Chairman started
off with the first question, "Should the regulator be a consumer
champion?" I would answer in this way, that I have not seen
any of the regulators being consumer champions in the past few
years, not only in finance, but in water, in energy and air traffic,
it has always been on the margin. Do you think a regulator can
be a consumer champion?
You keep saying, Martin, "I don't know
how to get things put right" and it comes back to us. You
are representing consumers. We should be responding to genuine
difficulties that you cannot solve, that they cannot solve and
they're suffering from. It comes back to Government. At the moment,
it's the regulators. We pass it to the regulators and the regulators,
as I say, have it on the margin. Do you think we can carry on
with regulators being seen as the consumer champions?
Mr Lewis: It's a very interesting
point. I'm always careful to say I don't represent consumers,
because I haven't been elected by anybody. I can only talk from
my own opinion—
Mr Mudie: You are articulate.
Mr Lewis: I hope so, but there
are many who will disagree with me. I deliberately hedged when
you asked me the question in the first place, because what I certainly
don't want to see is a pro-consumer remit taken away. I think
it's very important that the CPMA has a pro-consumer remit.
Mr Mudie: No, but let me just—
Mr Lewis: You're right, I don't
believe it can be a champion, no.
Mr Mudie: When the Governor
of the Bank of England came here on the first hearing, I thought
I was pretty marginal myself, because I asked about the position
of the CPA and where it was and how it was positioned with the
Markets Authority, why it wasn't separate. But the further the
discussions have gone on, when you consider what's happening to
consumer protection or consumer interests in the last few weeks
and months, you see, we could be arguing about a finance consumer
champion, but there are consumer champions needed across all government.
Mr Lewis: Absolutely.
Mr Mudie: I watched what
happened to women in the last Government in terms of there being
a Women's Minister in the Cabinet Office, with the ear of the
Prime Minister, which means that all Departments pay attention
if they raise a problem and all pieces of legislation are viewed
through the eyes of how this affects women. Do you not think there
is a very strong case for a consumer Minister in the Cabinet who
is the champion and we don't have this fielding it off to regulators
in the separate Departments, where some are better than others,
but they're all bloody bad?
Mr Lewis: If you
forgive me being cheeky, would they be able to get anything done
either? The problem is legislation and getting legislation through
is even more tricky than getting—the reason I say regulation
is that at least regulation can be monitored.
Mr Mudie: No, no, don't be negative.
Come on, don't be negative. This is your chance to tell us how
you think we could play a better role than we have. Now, come
on, you have to come off the fence and tell us.
Mr Lewis: I think you need both,
is the honest answer. I think you need a strong consumer minister
there to represent consumers with a very defined role that says
they don't have to give a high jot what business thinks. Business
is very important; I'm not an enemy of business in any way, but
business often has the ear of the Government. I think there should
be someone with a role who is very specific, who is deliberately
polemic, deliberately on the side of the consumers, who, if someone
says to them, "Come on, it might cut the profits and we need
to make sure our big businesses are okay," will say, "Well,
you know what, talk to someone else. It's not my job, you can
argue that with the other people. I'm here to represent consumers."
But the same goes to the regulator as well because
there are many things; regulation should be able to be done more
quickly than legislation. I think it should work that way. I will
give you my litmus test as to whether the CPMA would work. This
is the question we can never answer because it's past. When we
had bank charges and when the banks had paid back £1 billion
and had continually paid out, and a test case went to the court
between the OFT and the banks, the FSA decided to put bank charge
reclaiming on hold, but it did not put on hold the charging of
bank charges. For me, that was a biased decision that favoured
the banks against the consumers.
The banks had paid back £1 billion. That
reason is pretty decent evidence that they were pretty scared.
They lost in two courts and it was only on a technicality in the
Supreme Court that it was overturned. It was a very painful day.
But my perspective on that is why was the hold put on reclaiming
if a hold wasn't put on charging? How is that fair to consumers?
How is that balanced? If the CPMA is a real consumer champion,
it would have said, "You can't do this, if you're going to
put a hold on and stop consumers getting their money back."
Even after we'd won in the High Court, even after we'd won in
the Court of Appeal, the hold on reclaiming was still on, but
banks were still allowed to charge. That was just a nonsense decision.
A real regulator, CPMA, pro-consumer regulator, in my perspective,
would have put that hold on both. That is a good litmus test to
how we go. Even though it lost in the end, it's a good litmus
test for fair treatment on both sides. But I think the worry about
the economic impact of damaging business is seen as a much stronger
worry than damaging consumer interests.
Chair: You have given
us some very interesting and entertaining evidence. There are
many people who have cause to be grateful for a lot of the work
you do. I want to end by asking who regulates you?
Mr Lewis: Nobody. In that my website
has a very minor impact because we tell people to go to comparison
sites, it has to be a regulated introducer, so I have FSA status
for that, but I am a journalist, and we are not regulated. I could
either say, "No one," or I could also answer, "The
same people as those who regulate you, sir," which is the
general public and my users who would leave me, ditch me and not
trust me if I got it wrong. We do get it wrong on occasions. But
when we get it wrong, we get it wrong for the right reasons, not
the wrong reasons. I am a financial journalist and regulation
of the media is an interesting one.
I go back to what I said earlier. Someone spent
a lot of money setting up Moneymadeclear. You know what, if they
had come to us and said, "We want you to do this, this and
this and we'll give you a stamp," I would have been regulated
and you would have saved the Government a lot of money.
Chair: You did, for example,
recommend Kaupthing Edge just before it went under, only days
I think before it went under, as the lead account.
Mr Lewis: Kaupthing Edge didn't
go under. Kaupthing Edge was transferred to ING Direct. A better
example would be Icesave. What we said with Icesave was the protection
system is £35,000 per person the first £18,000 under
the passport scheme, which should be scrapped, is regulated by
the Icelandic Government. The Icelandic Government has told us
it would be safe. When I interviewed Yvette Cooper, the Minister
on this, which was not shown in the TV programme months before,
and asked about the system, I was told that whatever happened
it would be safe and that money would be safe.
What I said to people, what I still say to people
now, is we cannot judge company solvency and we will not look
at company solvency. But what we will do is where there is a protection
anomaly, we will tell you about it. I was the voice shouting for
years before that, for a year after Northern Rock, "Spread
your savings. Don't put more than £35,000 in any one account."
So yes, we go on best products because I am certainly not qualified
to look at company solvency and would never dream of doing so,
but we do try, where we can, to tell people how they are protected.
But did you know that the Icelandic Government wasn't going to
pay up, because that was the only thing that we had slightly wrong.
Thankfully, the British Government kept up with its promise and
did. Yes, as I say, we make mistakes and I wish I couldn't, but
we do sometimes, but we make them for the right reasons.
Chair: You are offering
IFA-like advice though in many ways, aren't you?
Mr Lewis: No, no, not on regulated
products, no. We are a website. First of all, we don't ever deal
with individuals.[1]
We are a website offering articles based on what we believe are
products, pros and cons to those products to allow consumers to
make a choice. IFAs give specific advice based on personal circumstance.
We allow people to come and read and tell them the pros and cons
to make their own decisions and no more than The Guardian
money website section or Sunday Times money section do.
Hopefully, we think we do it very well and we are more prescriptive.
Just to flick that back at you, we are about
to give generic money advice and are setting that up through CFEB.
The problem we have is that generic money advice is generic. Nobody
has ever asked me, "How do I get a cheap loan?" What
people ask me is, "What's the cheapest loan?" No one
has ever asked me, "How do I get a cheap credit card?"
They ask me, "What's the cheapest credit card?" Now,
I do all my couching because I'm scared, because of all the reasons
you have just said, of giving the wrong answer. Even if I've done
my research, I'm not perfect. We do it to the best of our ability.
Generic money advice won't work because it's generic. Regulations
penalise people for doing the right thing and trying to help.
I will flick this back to you, I would be happy to be regulated
if it gave me some protection to give the right answers to people.
Chair: I think it is important you should
have an opportunity to put these points on the record.
Mr Lewis: Yes, thank you. I'm
not having a go.
Chair: Who pays you?
Mr Lewis: We won't
take adverts on the site, because I don't believe anyone should
be able to pay to be on the site. What we do is we have a Chinese
wall between our editorial team and the two-man commercial team.
Obviously, I get paid by broadcasters and for newspaper columns,
but I presume you're talking about the website. We write our articles
to the best of our ability, we work out what the best products
are when there are products, and a lot of our articles do not
have products. And then we go to the commercial money websites,
like your Moneysupermarket or your uSwitch, and we take their
links. If they have a link through to a card or a product, we
use their link and we get a split of the revenue there. But if
we can't get a link that pays, then the best product is still
the best product, and it just doesn't pay. My only possible way
of impacting traffic, and we do do this, and I say this on the
website, is we won't direct traffic to products, but we can direct
traffic to articles that happen to more remunerative at the time.
So if the top savings article has a decent affiliate linked in
at the time, we can direct people to top savings more at that
moment. But if people want to know top savings at a time when
it does not have affiliates in, they can just go to that page
themselves. That is the commercial tool. I have 32 staff to pay.
Chair: Thank you
very much, Martin Lewis, for coming along. We have enjoyed the
evidence you have given us this morning.
Mr Lewis: A pleasure,
thank you.
Chair: We will take a three-minute break.
1 Note by witness: IFAs look at giving individuals
specific bespoke advice on regulated products and investments.
Yet our prime subject areas are the things where there's no advice
available - it splits into three categories - first there's guides
on debts, savings, bank accounts, utility bills, then we've a
deals section for cheap consumer products and discounts, and finally
we have a financial justice section for reclaiming issues, consumer
rights, and personal financial advocacy. It's important to understand
we are a website. Back
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